Majority of TEAM workers opt for transfer deal

A unique compensation deal for 1,500 employees at the aircraft maintenance company, TEAM Aer Lingus, the wholly owned subsidiary of the Irish state airline, Aer Lingus, has paved the way for the sale of the company to the Danish conglomerate, FLS Industries, probably in September 1998

The sale of the aircraft maintenance company, TEAM Aer Lingus- wholly owned by Ireland's national airline, Aer Lingus- to the Danish company, FLS Industries, is to go ahead following the acceptance by 1,500 employees of a once-off compensation package. In return for average payments of IEP 36,000, the majority have agreed - on an individual basis - to waive personal employment guarantees with the parent company, otherwise known as "letters of comfort" (IE9711235F).

The guarantees, held by almost 1,100 of the company's current workforce of 1,500, were given in 1990 on the establishment of TEAM. This involved the expansion of Aer Lingus's old maintenance and engineering division where the 1,100 were employed. Prospects for the industry seemed bright with its job creation potential highlighted by the Government. However, TEAM has recorded accumulated losses of IEP 80 million since its establishment and has been constantly engaged in efforts to trim labour costs in a vain bid to compete internationally.

FLS, the purchaser, sees its present operations in the UK fitting in with a Dublin-based operation and will retain the Aer Lingus maintenance contract for 10 years. It is also looking for further acquisitions in Europe and the USA as it seeks to became a major international player in aviation maintenance.

Irrevocably binding

The 1990 employment guarantees emerged only after the workforce twice voted to reject any transfer to TEAM. To ensure the project went ahead, each employee was offered a letter of comfort, perhaps best summed up by the following passage: "The company [Aer Lingus] have agreed to convert their guarantees concerning your position as an Aer Lingus employee into an irrevocably legally binding form such as if TEAM did not exist," (emphasis added). Employees were also given a guarantee that Aer Lingus would continue to hold a stake of at least 51% in TEAM.

When FLS became interested in acquiring TEAM outright in late 1997 it was agreed by both parties that the individual guarantees would have to be overcome if workers were to transfer to the new company. Aer Lingus acknowledged that the guarantees entitled those who held them to re-employment with the parent company. However, the Aer Lingus group change and restructuring director, John Behan, warned the trade unions that there would be viable work for just 30-40 of the workers concerned. This would necessitate a redundancy offer being made to the remainder.

FLS was interested in the purchase of TEAM only if a sufficient number of TEAM workers would agree to transfer over to FLS. The skills of the workforce were the key element in the deal as far as FLS was concerned and it was estimated that at least 70% would need to to transfer voluntarily.

The monetary compensation package offered to waive the letters of comfort ranged from IEP 7,000 to IEP 65,000 with the average payment estimated at IEP 36,000 (IE9802243N). Some 400 workers who had joined the company since 1990 and who, therefore, did not possess guarantees, were offered up to IEP 7,000 per person. All were offered the retention of flight concessions with Aer Lingus and would be allowed to retain their Aer Lingus shares for three years (to allow them take advantage of tax regulations governing employee share ownership schemes). The package would cost Aer Lingus IEP 54.6 million in total.

It was agreed that an independent "facilitator" should oversee the process. Each worker was given the chance to return an acceptance form indicating their personal assent to waive the guarantees. In return, they would be entitled to receive the above monetary compensation package tailored to individual service records.

Offer remained open

When the first deadline for the acceptance of assent forms passed at the end of May 1998, just 41% had been returned, indicating a disapproval rate of 59% of the workers concerned. However, after FLS gave assurances that it would honour certain pay commitments contained in Ireland's current national pay agreement, Partnership 2000 (IE9702103F) as well as issuing reassurances that FLS wants to invest in and expand the business, a second deadline was set for 6 July. The number of new acceptance forms received by that date meant saw the total saying "yes" rise to 72%. Thereafter, the company effectively kept the deal open and by 17 August, an estimated 93% had accepted the terms.

"Heads of agreement" have already been signed by Aer Lingus and FLS management and the proposed takeover is to be considered by Ireland's Competition Authority in September 1998. No difficulties in that regard are anticipated, with the final deal expected to be concluded later that same month.

All former TEAM workers will automatically be covered by transfer of undertakings regulations in relation to issues such as pay and pensions.

Commentary

The agreement is seen as unique in Irish industrial relations because the individual employment guarantees were themselves unique. They resulted from political pressure by the Fianna Fail/Progressive Democrat Government in 1990 to ensure that the TEAM project went ahead.

This project was seen as having enormous job-creation potential at the time. In the aftermath of the 1991 Gulf War when the whole aviation industry worldwide went into a brief tailspin, TEAM was hit by global consolidation undertaken by larger players in the aircraft maintenance market.

TEAM's own costs were also too high and efforts to trim its labour costs base and boost productivity, while partially successful, were insufficient. Offloading TEAM became a priority for the parent company. This is now near completion, but at an enormous cost to Aer Lingus. The windfall gains coming to TEAM employees, particularly those holding the guarantees, have been very significant and, with the investment that FLS has promised to make in TEAM, the employees and the company's future would seem to be secure. (Brian Sheehan, IRN and John Geary, UCD)